Each week, we screen the US-listed stocks under Morningstar’s coverage for newly undervalued names.
For the week ended Jan. 10, 16 stocks saw their Morningstar Ratings change to 4 stars, while another nine dropped into 5-star territory. Stocks rated 3 stars are fairly valued according to Morningstar analysts, while those rated 1 or 2 stars are considered overvalued.
The five new 4-star stocks with the largest market capitalization are:
• Alibaba Group BABA
• AT&T T
• National Grid NG.
• Yum Brands YUM
• Las Vegas Sands LVS
The five new 5-star stocks with the largest market capitalization are:
• Mondelez Global MDLZ
• Lloyds Banking Group LLOY
• Constellation Brands STZ
• Hershey HSY
• Vodafone Group VOD
The full lists of new 4- and 5-star stocks are at the bottom of this article. All returns are reported in the stock’s base currency, and all data is sourced from Morningstar Direct.
Newly Undervalued Stocks for the Week Ended Jan. 10
The Morningstar US Market Index fell 1.92% over the past week, leaving the overall US stock market moderately overvalued, hovering at a 7% premium to its fair value estimate on a cap-weighted basis.
Of the 861 US-listed stocks covered by Morningstar analysts:
• 38% are undervalued, 40% are fairly valued, and 22% are overvalued.
• 16 are newly undervalued.
• Three are newly overvalued.
• Nine moved from a 4-star rating to a 5-star rating.
• Three moved from a 5-star rating to a 4-star rating.
• None of the newly undervalued stocks jumped from a 3-star rating to a 5-star rating.
• Six are no longer undervalued.
Morningstar analysts assign every stock under their coverage a fair value estimate, which is an intrinsic measure of the stock’s worth, and an Uncertainty Rating, which captures the range of potential outcomes for that estimate. A higher Uncertainty Rating equates to a larger range of prices considered fairly valued. These two metrics and the stock’s current price determine its Morningstar Rating.
Distribution of Star Ratings for US-Listed Stocks
Data is for US-listed stocks currently under analyst coverage.
Source: Morningstar Direct.
Metrics for this Week’s New 4-Star Stocks
Alibaba Group
• Morningstar Rating: 4 stars
• One-Week Return: -5.86%
Internet retail company Alibaba has dropped 26.31% over the past three months and climbed 15.24% over the past year. The stock trades at a 19% discount to its fair value estimate of $100 per share, with an Uncertainty Rating of High. Alibaba is a large-value company with a wide economic moat.
AT&T
• Morningstar Rating: 4 stars
• One-Week Return: -3.10%
Telecom services firm AT&T is up 3.52% over the past three months and 36.07% over the past year. The stock’s price is 13% below its fair value estimate of $25 per share, with an Uncertainty Rating of Medium. The large-value stock has a narrow economic moat.
National Grid
• Morningstar Rating: 4 stars
• One-Week Return: -5.11%
Regulated electric company National Grid has lost 13.16% over the past three months and 8.25% over the past year. The large-value stock has no economic moat. National Grid is trading at a 9% discount to its fair value estimate of $61.60 per share, with an Uncertainty Rating of Low.
Yum Brands
• Morningstar Rating: 4 stars
• One-Week Return: -7.64%
Restaurant operator Yum Brands has dropped 7.07% over the past three months and 2.71% over the past year. The stock is trading at an 11% discount to its fair value estimate of $138 per share, with an Uncertainty Rating of Low. Yum Brands is a mid-core company with a wide economic moat.
Las Vegas Sands
• Morningstar Rating: 4 stars
• One-Week Return: -6.37%
Travel and leisure company Las Vegas Sands has lost 8.87% over the past three months and 2.55% over the past year. The mid-growth stock has a narrow economic moat. Las Vegas Sands is trading at a 21% discount to its fair value estimate of $60 per share, with an Uncertainty Rating of High.
Metrics for this Week’s New 5-Star Stocks
Mondelēz Global
• Morningstar Rating: 5 stars
• One-Week Return: -6.03%
Confectioner Mondelēz has dropped 20.31% over the past three months and 20.95% over the past year. The stock trades at a 25% discount to its fair value estimate of $75 per share, with an Uncertainty Rating of Low. Mondelēz is a large-value company with a wide economic moat.
Lloyds Banking Group
• Morningstar Rating: 5 stars
• One-Week Return: -4.09%
UK bank Lloyds has lost 16.23% over the past three months and gained 15.17% over the past year. The large-value stock has a narrow economic moat. Lloyds is trading at a 34% discount to its fair value estimate of $3.90 per share, with an Uncertainty Rating of Medium.
Constellation Brands
• Morningstar Rating: 5 stars
• One-Week Return: -18.07%
Alcoholic beverages company Constellation has dropped 23.80% over the past three months and 27.48% over the past year. The stock trades at a 38% discount to its fair value estimate of $291 per share, with an Uncertainty Rating of Medium. Constellation is a mid-core company with a wide economic moat.
Hershey
• Morningstar Rating: 5 stars
• One-Week Return: -6.41%
Confectioner Hershey has lost 14.98% over the past three months and 14.14% over the past year. The mid-value stock has a wide economic moat. Hershey is trading at a 25% discount to its fair value estimate of $210 per share, with an Uncertainty Rating of Low.
Vodafone Group
• Morningstar Rating: 5 stars
• One-Week Return: -4.96%
UK telecom services firm Vodafone is down 15.06% over the past three months and 0.68% over the past year. The stock’s price is 34% below its fair value estimate of $12.20 per share, with an Uncertainty Rating of Medium. The large-value stock has no economic moat.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
